What is share dealing and how does it work?

What is share dealing?

Share dealing is the act of buying and selling company shares, exchange traded funds (ETFs), and investment trusts, generally over the medium to long term. The aim is to make a profit by selling the asset at a higher price or by receiving dividend payments on shareholdings.

A share dealing account enables you to get exposure to thousands of company shares in the UK and internationally, as well as investment trusts and ETFs. Note that, when using this service, there’s usually a charge or fee involved.

With us, you can invest in over 13,000 shares, funds and investment trusts using our share dealing account. You’ll pay zero commission on US shares, and just £3 on UK shares.¹

Share dealing and compound growth

Many people invest because – in the past – it has led to greater returns than savings accounts. However, investing comes with more risk and past performance doesn't guarantee future results. Savings accounts have a guaranteed flat rate, whereas share prices move up and down.

Over time, share price volatility tends to smooth out, particularly when you factor in dividend payments. This is because dividend payments provide protection to offset price declines when the market goes against you.

Additionally, if you were to reinvest dividend payments when your investment performs well, each time you do so, you’ll increase the value of your holdings. This is known as compound growth.

When you receive dividends and reinvest them, you’re able to buy more shares of the same stock with those funds and it becomes a snowball effect. Think about the analogy of folding paper.

If you folded a piece of paper 42 times, it would reach the moon. So, by reinvesting dividends upon dividends, your total shareholding will automatically increase.

Remember, past performance is not a guarantee of future results. Every investment decision should be based on a thorough analysis of market conditions and the prospective investment itself.

Ways to deal shares

There are three main ways to deal shares:

• Online share dealing is the most common way to get exposure to stocks. You’ll create an account with an online stockbroker, like us, and get access to shares listed on an exchange
• A managed share dealing account enlists the assistance of expert managers to handle your investments by creating a portfolio tailored to your liking and risk profile. You can do this via our Smart Portfolios
• Buying shares through the company can be done via direct stock purchase plans, dividend reinvestment plans (DRIPs), and employee stock purchase plans (ESPPs)

Charges and fees

Here’s a list of charges and fees that you need to consider when share dealing:

• Commission – this is usually the main fee when buying and selling shares. Most brokers charge a flat commission depending on how often you trade and the type of stock you’re trading
• Account charges – some brokers levy a charge based on the value of the shares or funds you own, usually as a percentage, eg 0.5%. You may also encounter custody fees or inactivity fees
• FX fees for foreign shares – a standard conversion fee that charges a percentage when you buy or sell overseas shares
• Deposits and withdrawals – depending on the method you use to deposit and withdraw your money, eg your bank, you may get charged upon making transactions, especially if an international transfer is required
• Transfer fees – if you already own shares with a different broker and want to switch, you can transfer your investment at a small cost. It’s advisable to perform a comparison regularly to ensure that you’re with the best investment platform

Be careful to do your research before you open an account. This is because the commission charged will differ based on the location of the market, currency required, and frequency of your trading.

For example, our fees are suited for active traders. Someone who makes three trades on US shares per month for a year will pay £30 (£10 x 3) + 0.5% FX conversion in fees for their first whole year, and £0 + 0.5% FX conversion every year after.

This is because US shares are zero commission when you make three or more trades in the previous month, and custody fees are waived if you trade three times or greater per quarter.¹

What are the benefits and risks of share dealing?

You can also get exposure to ETFs and trusts to protect your investment from being eroded if the stock market moves against you. With ETFs and trusts, you can diversify your portfolio by tracking the performance of a group of markets.

Is share dealing right for me?

Share dealing is right for you if you have some knowledge of how investing works and you want to hold a position over a time period you’re comfortable with. Fear not, if you don’t have a firm grasp of how to invest in shares, you can find extensive educational content on IG Academy to help you sharpen your skills and knowledge.

With share dealing, you can buy and hold a piece of a company you love. This ownership will enable you to have a say on certain company matters, as well as receive dividend payment if the company grants them. Note that voting rights are based on the type and number of shares you own, and you’ll be one of many to have a say.

An alternative for people who don’t want to hold a position for a long time is trading. When you trade, you predict the rise and fall of markets by going long if you think that the asset will appreciate or go short if you think that it’ll depreciate in value.

When trading, you can open a position using leverage, which means that most of the capital is put up by your broker, with you only paying a deposit worth a fraction of the trade size in order to open a larger position.

Although you’re only putting down a small percentage of the full trade value upfront, your total profit or loss will be calculated based on the full position size, not just your deposit. That’s why you need to take steps to manage your risk.

5 steps to start share dealing with us

1. Learn how share dealing works before you open a share dealing account
2. Fund your investment account
3. Pick your stock, ETF or investment trust
4. Set your position size
5. Place your deal and monitor your position

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